Six Useful Momentum Indicators

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"Trading without indicators is like running blind."

Trading without indicators is like running blind, encouraging emotional trading—the bane of successful investment. It's hard to know what to buy or sell, let alone when to do prudently. Thank goodness indicators provide more immediate stock and index movement information. The six most popular indicators are:
  1. Stochastic Oscillator (SO): Compares a security's closing price to its price range over a given timeframe. In an upward-trending market, prices tend to close near their high; during a downward-trending market, prices tend to close near their low. . .SO, which ignores market jolts, is an ideal companion to the MACD (moving average convergence-divergence) for a more effective trading experience.

  2. Relative Strength Index (RSI): Compares the magnitude of recent price gains to recent losses to determine a security's overbought and oversold conditions. The RSI, on a scale of 0–100, indicates a stock is overbought when it's over 70, and oversold when it's below 30.

  3. StochRSI: Created by applying the SO to RSI values rather than standard price data thereby giving the trader a better idea of whether the current RSI value is overbought or oversold, which becomes quite useful when the RSI value is confined between its signal levels of 30 and 70.

  4. TRIX: Displays the percent rate-of-change of a triple, exponentially smoothed moving average of a security's closing price (designed to filter out insignificant stock movements).

  5. Commodity Channel Index (CCI): Oscillator that quantifies the relationship between a security's price, its MA and normal deviations from that, thus determining when a security's overbought or oversold.

  6. Price Rate of Change (ROC): Measures the percentage rate of change, indicating momentum's strength, between the most recent price and the price over "x" periods (the narrower the better), thereby identifying bullish or bearish divergences.

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